The simple, effective strategy for assured wealth

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There are many opportunities in the property market that arise suddenly and should be seized.  You can also take different risks at different parts of the property cycle, for instance, gearing high at the bottom of the market when you are sure that prices will rise, or selling out at the top of the market so that you will have sufficient cash to get through the bad times.  But you should have a core strategy to assure you of constant wealth creation over the decades.

You should follow your core strategy and be conscious of it when you do something outside of the strategy.  Perhaps the simplest and most effective strategy to build a property portfolio that will give you growing wealth and income is this: Only add a property to your portfolio when the net income on your current portfolio can cover all the costs of the new property as if it is vacant and not income producing.

The importance of this strategy is that it allows you to buy at any stage in the property cycle and therefore be able to choose the best long-term investment for your future wealth and income.

Property is an income investment.  This income is to your portfolio what the blood stream is to your body.  The object is to keep it flowing as rhythmically, consistently and strongly as possible.  Setting yourself a return on investment, or initial yield, as a minimum hurdle you must beat when you buy a property is your first step in ensuring that flow. Wealth management is all about increasing income, reducing costs and enhancing value, all of which will increase your return.

Any investment portfolio must be adapted to the individual’s own needs, temperament and personal preferences. This is more so than usual with property for two reasons:

Firstly, the individual nature of each property can be both an advantage and a disadvantage. The advantage is that it is possible to find an individual property within a particular property type that really suits you.  If you are a high-risk investor, you may decide to invest in the inner city.  If you prefer to manage your investment yourself, you might want to accumulate the holdings in just one block of flats. Or, you may decide that studio flats are really great and will eventually have the greatest capital gain.  Or you might be a low risk investor who has worked out that flats in the middle income suburbs will give you the most certain occupancies and most reliable income.  You may not get great growth in income, but you will be sure of collecting your rent each month.  And you could decide to diversify within that area by buying a combination of bachelor, one and two bedroom units.

Secondly, property is a long-term investment.  You can buy and sell shares or long bonds from one day to the next.  When you sell a property, it can take months and the transaction costs, including sales commission, transfer duty and legal costs, is higher. A property that does not suit your personal needs, or even tastes, can become a millstone around your neck.  So it becomes more important with property to develop an understanding of both property and yourself in the process of building up your portfolio.

Through following your core strategy, you will develop a portfolio of properties that, over time, will create enough income and build enough net value over the debt to free you from relying on other sources of income.  And, who wouldn’t want that?


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